Entire Document - Chris Hani District Municipality

The capital structure of the municipality consists of debt, which includes the Long-term Liabilities disclosed in
Note 4, Bank, Cash and Cash Equivalents and Equity, comprising Funds, Reserves and Accumulated Surplus as
disclosed in Note 16 and the Statement of Changes in Net Assets.
Gearing Ratio
The gearing ratio at the year-end was as follows:
2009 2008
R
R
Debt 8 626 446 9 553 861
Bank, Cash and Cash Equivalents (254 765 637) (222 948 015)
Net Debt (246 139 191) (213 394 154)
Total Capital (114 858 911) (119 708 902)
Net debt to total capital ratio 214.30% 178.26%
Debt is defined as Long- and Short-term Liabilities, as detailed in Note 13.
Total Capital includes all Funds and Reserves of the municipality, disclosed as Net Assets in the Statement of
Financial Performance and Net Debt as described above.
40.4 Financial Risk Management Objectives
Due to the largely non-trading nature of activities and the way in which they are financed, municipalities are not
exposed to the degree of financial risk faced by business entities. Financial Instruments play a much more limited
role in creating or changing risks that would be typical of listed companies to which the IAS’s mainly apply. Generally,
Financial Assets and Liabilities are generated by day-to-day operational activities and are not held to manage the
risks facing the municipality in undertaking its activities.
The Directorate: Financial Services monitors and manages the financial risks relating to the operations through
internal policies and procedures. These risks include interest rate risk, credit risk and liquidity risk. Compliance with
policies and procedures is reviewed by the internal auditors on a continuous basis, and annually by external auditors.
The municipality does not enter into or trade financial instruments for speculative purposes.
Internal audit, responsible for initiating a control framework and monitoring and responding to potential risk, reports
periodically to the municipality’s audit committee, an independent body that monitors the effectiveness of the internal
audit function.
40.5 Significant Accounting Policies
Details of the significant Accounting Policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of Financial Asset,
Financial Liability and Equity Instrument are disclosed in the Accounting Policies to the Annual Financial Statements.
40.6 Market Risk
The municipality’s activities expose it primarily to the financial risks of changes in interest rates (see Note 40.9 below).
No formal policy exists to hedge volatilities in the interest rate market.
40.6.1 Foreign Currency Risk Management
The municipality’s activities do not expose it to the financial risks of foreign currency and therefore has no formal
policy to hedge volatilities in the interest rate market.
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